1 Yakult Price Evaluation. 2 Copyright © 2002 ACNielsen Yakult Yakult contains 30 Billion live Lactobacillus casei Shirota, a probiotic strain of good

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YakultPrice Evaluation

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Copyright © 2002 ACNielsen

Yakult

Yakult contains 30 Billion live Lactobacillus casei Shirota, a probiotic strain of good bacteria Strong enough to survive the journey through the stomach’s

gastric juices to reach the small intestine alive, where they help maintain an ideal balance of beneficial bacteria

Probiotics: Replenish and balance the level of beneficial bacteria Help control the number of harmful bacteria that naturally

exist in the digestive system Assist with the digestion of food and absorption of nutrients

from the foods you eat Help manufacture vitamins Enhance you immune system Help normalise the regularity of your

bowel movements

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Yakult – Price Evaluation

Market scenario Cultured milk market comprises of 2 brands, Yakult and

Vitagen, available in only 1 standard (5s) pack size Price

• Yakult $2.60 • Vitagen $2.40

Share• Yakult 67%• Vitagen 33%

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Yakult – Price Evaluation

Case analysis Yakult is interested in reviewing price and has commissioned

a $9.99 research study to understand how consumers

respond to changes in price

Research findings are provided. You are required to: Compute the price elasticity of demand for Yakult at $2.30, $2.60,

$2.90 and $3.10. Estimate the price at which Yakult will maximize profit. (Note that

total market remains fixed at the tested price range) What are the key implications of taking price up / down? Make a

recommendation on the selling price for Yakult.

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$9.99 – Research Method

Approach to predicting the sensitivity of demand to price where respondents in separate matched panels are asked to indicate their purchase intent for each brand using a constant sum scale.

The price of the test brand is varied across the panels while the price of other brands is maintained at their market level

Estimate of market share for test brand is obtained at different price levels based on the purchase intent of each respondent in each panel

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Research DesignCultured Milk

To determine the price-share relationship for Yakult Study Centre: Singapore Target Group: Household decision makers across all race /

income groups Brand portfolio: Yakult and Vitagen Price range:

• Yakult: $2.30, $2.60, $2.90, $3.10• Vitagen: $2.40

Panel matched on race and income group Panel matched on brand usage

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Cultured Milk Market: Buyer Base

Yakult Only

Yakult & Vitagen

Total Cultured Milk: 80%

Vitagen Only 20 4020

80% of consumers consume cultured milk. Of this 40% consume Yakult only, 20% consume Vitagen only and the remaining 20% consume both brands

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Sample Frame

Panel#

Yakult Yakult & Vitagen

Vitagen Total

1 200 100 100 400

2 200 100 100 400

3 200 100 100 400

4 200 100 100 400

Total 800 400 400 1600

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Test Price Range (S$)

Panel#

Yakult Vitagen

1 2.30 2.40

2 2.60 2.40

3 2.90 2.40

4 3.10 2.40

Current price

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Research Results – Share at different PricesYakult – Price Elasticity of Demand?

Price Share Elasticity

2.30 76 ?

2.60 67 ?

2.90 58 ?

3.10 52 ?

Yakult – Price and Share

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Profit Optimisation

At what price point do we maximise profit? Assume:

• Trade margin is 20%

• Cost per unit is S$ 1.17

• Total market volume for cultured milk remains unchanged.

(Should Yakult adjust price in the range $2.30 to $3.10, while

some consumer will switch brands, we do not expect the

market as whole to decline or increase).

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Decision

Make a price decision. What do you recommend as the selling price for Yakult?

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Definitions and Formulae

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Price Elasticity

Relates change in price to change in sales volume Formula:

e = Price elasticityV = VolumeP = Price

In the chart, the price elasticity at P0, V0 is:

V

PP0

V0

ΔV

ΔP

𝑒=𝑃 𝑑𝑉𝑉 𝑑𝑃

𝑒=𝑃 0𝑑𝑉𝑉 0𝑑𝑃

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Gross Profit Yakult’s Gross Profit = Revenue – Variable Costs

= Sales Value – Trade Margin – Variable Costs

One approach to comparing profit across price points

Assuming total market volume is constant within price range

I Current III IV

Consumer Selling Price 2.30 2.60 2.90 3.10

Share 76 67 58 52

Sales Volume (Index) ? 67 ? ?

Sales Value (Index) ? 174.2 ? ?

Trade Margin 20% 20% 20% 20%

Revenue (Index) ? 139.4 ? ?

Variable cost / unit 1.17

Variable costs (Index) ? 78.4 ? ?

Gross Profit (Index) ? 61.0 ? ?

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Documents

1 Yakult Price Evaluation. 2 Copyright © 2002 ACNielsen Yakult Yakult contains 30 Billion live Lactobacillus casei Shirota, a probiotic strain of good